Judge Grants David Einhorn's Bid to Block Apple Proxy Vote

Apple Inc.AAPL-0.87% said it would pull a contested proposal from its shareholder meeting next Wednesday, after a federal judge granted a bid by Greenlight Capital Inc. to block a vote on the measure.

Greenlight founder David Einhorn had opposed Apple's proposal, which relates to the company's ability to issue preferred shares, and had sued to stop it on the grounds that the proposal was incorrectly bundled with other items. Mr. Einhorn wants the vote to act as a referendum on the $137 billion in cash Apple is holding.

Friday's ruling by the federal judge gave Mr. Einhorn a victory in his procedural fight with Apple. But more broadly, it draws attention and scrutiny to his ultimate plan to coerce Apple to deliver more of its cash to shareholders.

Following Mr. Einhorn's court victory, Apple late Friday said in a statement that the company was "disappointed" with the ruling and described the proxy proposal as "part of our efforts to further enhance corporate governance."

Mr. Einhorn opposes the proposal because it feels it would make it harder for the company to issue a new preferred dividend-yielding stock.

On Friday, U.S. District Richard Sullivan in Manhattan issued the injunction preliminarily blocking a vote on the bundled proposals while the litigation is heard. The proposal "impermissibly bundles 'separate matters' for shareholder consideration," the judge said. He gave both sides until March 1 to propose next steps in the case.

A spokesman for Greenlight said the company was "pleased" with the decision and looked forward to Apple considering its proposal to return more cash to shareholders.

"This is a significant win for all Apple shareholders and for good corporate governance," the statement read.

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The shareholder proposal at issue sought to amend Apple's articles of incorporation in three ways, including changing language about the election of directors, setting a minimum value of Apple shares and requiring a shareholder vote before issuing preferred shares. Greenlight opposed the third measure but backed the other two.

Apple argued that the proposals could be grouped together because they comprised a single action: an amendment of Apple's articles of incorporation. But Judge Sullivan said he found that argument "unavailing."

A spokesman for the California Public Employees' Retirement System said it continued to support Apple in its efforts, "and believe that the implementation of majority voting and shareholder approval for the issuance of new stock—preferred or otherwise—is worth waiting for."

The judge's decision rested in large part on whether Apple investors such as Greenlight would suffer "irreparable harm" if a vote on the measure was allowed to go forward. Judge Sullivan said they would, because they "will have been forced to vote on a package of items for which they did not have a single position."

Apple, of Cupertino, Calif., has questioned Greenlight's motives in bringing the lawsuit, accusing the hedge-fund firm of trying to prod Apple into issuing a type of preferred stock that Greenlight is advocating for.

The lawsuit comes as Mr. Einhorn has publicly called on Apple to return to shareholders more of the $137 billion in cash the company is holding. In an unusual conference call with Apple investors on Thursday, Mr. Einhorn called on the tech company to issue the preferred stock as a way of returning cash to yield-hungry investors. On the call, Mr. Einhorn also criticized the broader practice of tech companies building large cash reserves to protect themselves against unexpected downturns, or to fund possible acquisitions.

According to a recent regulatory filing, Greenlight boosted its stake in Apple by about 20% to 1.3 million shares in the fourth quarter.

Judge Sullivan separately denied a request by shareholder Brian Gralnick that pressed Apple to disclose more information about how the company grants stock awards to executives.

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